UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C.

                               FORM 10-KSB/A No. 1

                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                 Amendment No. 1 to Annual Report on Form 10-KSB
                      for the Year Ended December 31, 2000

                             INFODATA SYSTEMS INC.
 ------------------------------------------------------------------------------
            (Exact name of Registrant as specified in its charter)

              Virginia                 10416                16-0954695
       ----------------------   -------------------      ---------------------
      (State or other              (Commission              (IRS Employer
      jurisdiction of              File Number)          Identification Number)
       incorporation)

        12150 Monument Drive
        Fairfax, Virginia                                  22033
   --------------------------------                  -----------------
        (Address of principal                            (zip code)
         executive offices)
      Registrant's telephone number, including area code: (703) 934-5205

The  undersigned  registrant  hereby includes the following  items,  financial
statements, exhibits or other portions of its Annual Report on Form 10-KSB for
the year ended December 31, 2000, a set forth in he pages attached hereto:

     Part II.  Item 6. Management's Discussion and Analysis
               Item 7. Financial Statements
     Part III. Item 13. Exhibits, List and Reports on Form 8-K(a) Exhibit 23

Pursuant to the  requirements  of the  Securities  Exchange  Act of 1934,  the
registrant  has duly caused this  amendment  to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                                  INFODATA SYSTEMS INC.

Date: April 16, 2001                           By: /s/STEVEN M. SAMOWICH
                                                   ----------------------
                                                     Steven M. Samowich
                                                   President and Chief
                                                    Executive Officer

<PAGE>


                             INFODATA SYSTEMS INC.

                AMENDMENT NO. 1 TO ANNUAL REPORT ON FORM 10-KSB
                     FOR THE YEAR ENDED DECEMBER 31, 2000

PART II

Item 6.  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations


FORWARD-LOOKING STATEMENTS RELATING TO PRODUCT AND SERVICE DEVELOPMENT, FUTURE
CONTRACTS,  REVENUE,  AND THE ADEQUACY OF WORKING CAPITAL ARE BASED ON CURRENT
EXPECTATIONS THAT INVOLVE UNCERTAINTIES AND RISKS ASSOCIATED WITH NEW PRODUCTS
AND  SERVICE  OFFERINGS  INCLUDING,  BUT NOT LIMITED  TO,  MARKET  CONDITIONS,
SUCCESSFUL  PRODUCT  DEVELOPMENT,  SERVICE  INTRODUCTION  AND ACCEPTANCE,  THE
INTRODUCTION OF COMPETITIVE PRODUCTS,  ECONOMIC CONDITIONS,  AND THE TIMING OF
ORDERS AND  CONTRACT  INITIATION.  THE  COMPANY'S  ACTUAL  RESULTS  MAY DIFFER
MATERIALLY FROM CURRENT  EXPECTATIONS.  READERS ARE CAUTIONED NOT TO PUT UNDUE
RELIANCE ON  FORWARD-LOOKING  STATEMENTS.  THE COMPANY DISCLAIMS ANY INTENT OR
OBLIGATION TO UPDATE PUBLICLY THESE FORWARD-LOOKING  STATEMENTS,  WHETHER AS A
RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

Company Overview

The  Company  provides  its  customers  with  complex  information  technology
solutions  in the area of knowledge  management.  The Company  specializes  in
creating solutions that are enabled for use over internal intranets as well as
the public Internet. These products and services are provided to corporate and
government  workgroups,  departments and enterprises in three market segments.
The segments are information technology consulting services (Solutions), sales
of proprietary products  (Proprietary  Products),  and the sale of third party
software  and hardware  (Third Party  Products).  Solutions  includes  systems
integration,  document management analysis and implementation,  training,  and
consulting   services   surrounding  the   implementation   of  the  Company's
Proprietary  Products,  Third  Party  Products,  and other  related  services.
Proprietary Products include INQUIRE/Text software sales, Compose,  Aerial and
their  associated  maintenance.  Third Party  Products  include  software  and
hardware  with some related  services.  For the year ended  December 31, 2000,
Solutions accounted for 81% of total revenue;  Proprietary  Products accounted
for 13%, and Third Party  Products  accounted for the  remaining 6%.  Revenues
increased by 27% for the overall business in 2000 as compared to 1999. For the
year ended  December 31, 1999,  Solutions  accounted for 60% of total revenue;
Proprietary products accounted for 26%, and third party products accounted for
14%.

In  July  1997,  the  Company  purchased  AMBIA   Corporation   ("AMBIA")  for
approximately  $3,461,000.   Substantially  all  of  the  purchase  price  was
allocated  to  goodwill.  During  the second  quarter  of 1999,  AMBIA did not
achieve its  forecasted  revenues for its document  conversion  service  (DCS)
product. In addition, during the second quarter of 1999 the Company decided to
close  AMBIA's  office.  Accordingly,  based  on  these  events,  the  Company
determined that AMBIA would not achieve its future budgetary projections. As a
result, the Company revised the future operating plan for AMBIA. In accordance
with Statement of Financial  Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived  Assets and for Long-lived  Assets to be Disposed of"
("SFAS No.  121") the Company  evaluated  the  recoverability  of the carrying
value and determined that the anticipated future  undiscounted cash flows from
AMBIA  activities  would not be sufficient to recover the remaining  amount of
goodwill. Accordingly, during the second quarter of 1999, the Company adjusted
the carrying  value of the goodwill to its  estimated  value of  approximately
$370,000,  resulting in an impairment loss of  approximately  $1,941,000.  The
loss represents the difference  between the estimated  discounted  future cash
flows  and  the  recorded  amount  of  the  goodwill   discounted  at  a  rate
commensurate with the risk involved. As of December 31 1999, the remaining

                                     -2-

<PAGE>


carrying value of goodwill for AMBIA was $247,000,  which was fully  amortized
by December 31, 2000.

In October 1995,  the Company  purchased  substantially  all of the assets and
assumed  certain  liabilities  of  Merex,  Inc.  ("MEREX")  for  approximately
$361,000  of which  approximately  $312,000  was  allocated  to  goodwill.  In
December  1999, a certain key employee who focused on business  activities  of
MEREX  tendered his  resignation.  In the fourth  quarter of 1999, the Company
determined that pursuant to its focus of the Solutions segment of its business
that no active contracts nor client prospects existed that were a result of or
could reasonably be determined to have resulted from the MEREX acquisition. In
addition,  the Company  determined  that its business  focus was evolving away
from lower margin  business and that the  majority of MEREX's  former  clients
would not be pursued as prospects  for the Company's  services.  In accordance
with Statement of Financial  Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived  Assets and for Long-lived  Assets to be Disposed of"
("SFAS No.  121") the Company  evaluated  the  recoverability  of the carrying
value and determined that the anticipated future  undiscounted cash flows from
the  activities  acquired  from MEREX would not be  sufficient  to recover the
remaining amount of goodwill. Accordingly, as of December 31, 1999 the Company
adjusted the  carrying  value of the  goodwill to its  estimated  value of $0,
resulting in an impairment loss of approximately $181,000.

On March 30, 2000, the Company  acquired a business unit from Earth  Satellite
Corporation  specializing in providing  software  development  services to the
U.S. intelligence  community.  The acquisition of the business unit conveys to
the Company contractual  agreements which expand the Company's presence in the
intelligence community including a discipline known as Information Warfare. In
conjunction with this  acquisition,  the Company acquired a business unit from
Earth Satellite  Corporation  specializing in providing  software  development
services to the U.S. intelligence community.  The Company issued 40,000 shares
of Common  Stock with a per share fair value of $ 3.563,  equal to the trading
price  of the  Company's  Common  Stock on that  date.  The  acquisition  cost
approximated  $184,000,  including  $42,000 of direct cost  attributed  to the
business unit's sole contract.  The acquisition value of the contract is being
amortized over its life of 18 months.

At  December  31,  2000,  the  Company had net  operating  loss  carryforwards
("NOLs")  aggregating  approximately  $15,793,000  available to affect  future
taxable  income.  Under  Section 382 of the Internal  Revenue Code of 1986, as
amended ("Code"),  utilization of prior NOLs is subject to certain limitations
following a change in  ownership.  As a result of the AMBIA  acquisition,  the
Company is subject to limitations on the use of its NOLs.  Accordingly,  there
can be no assurance the Company will be able to utilize a  significant  amount
of NOLs.  Due to  uncertainty  of taxable  income to utilize the NOLs,  a full
valuation  allowance  has been  established  with  respect to the deferred tax
asset.

Revenue from consulting  services are recognized as the work  progresses.  Any
amounts  paid by  customers  prior to the actual  performance  of services are
recorded as deferred  revenue until earned,  at which time they are recognized
in accordance  with the type of contract.  Revenue from software  licenses are
recognized  in  accordance  with the  provisions  of the Statement of Position
97-2, "Software Revenue Recognition";  as amended.  Revenue from post customer
support and maintenance agreements are recognized over the period that support
is provided.  Deferred  revenue is recognized  with respect to pre-payments of
maintenance agreements.

Deferred revenue at December 31, 2000 was $590,000.  This related primarily to
amounts from maintenance revenue on the INQUIRE/Text  product.  The balance of
deferred revenue  generally relates to consulting  services.  The margins that
will be realized on transactions involving deferred revenue depend on the type
of service rendered by the Company.  Most of the Company's maintenance revenue
pertains to INQUIRE/Text, which is a mature software product. Deferred revenue
from  consulting  services carry lower gross margins than deferred  revenue on
maintenance agreements.

The components of the Company's cost of revenue is dependent on the product or
service. For consulting, the most significant item is the direct labor cost of
the consultants.  Other cost components  include any subcontractor  costs, any
non-labor direct costs such as travel and any associated indirect costs (e.g.,
office rent,  administration,  etc.)  allocated to the consulting  engagement.
Indirect costs are allocated  based on head count and square footage of office
space.  For  Third  Party  Products,  the cost of  revenue  includes  the cost

                                     -3-

<PAGE>


incurred by the Company to acquire the product, shipping and delivery charges,
associated taxes, any customization work done by the Company,  and any special
packaging  costs incurred prior to shipment.  The cost of maintenance  revenue
includes the customer service and software  engineering  personnel  supporting
the product and an allocation of associated indirect costs based on head count
and square  footage of office space.  For  Proprietary  Products,  the Company
includes in revenue  shipping,  delivery,  packaging,  production,  the direct
labor of  personnel  involved in  delivering  the  product and any  associated
expenses involved with the installation.

The  Company's  future  operating  results  may  vary  significantly  and  are
difficult to predict due to a number of factors,  of which many are beyond our
control.  These factors include, the demand for our services and products, the
level of product and price competition,  the length of the consulting services
sales cycle; the delay of deferral or customer implementation;  the success of
our direct sales force and indirect distribution channels; the mix of products
and  services  sold;  the timing of new hires;  the  ability of the Company to
control costs;  and general domestic  economic and political  conditions which
could have an adverse  effect on the  Company's  ability to meet its operating
goals.

Results of Operations

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999.

                                     -4-

<PAGE>


Revenues

The  Company  derives  revenue  from three  segments,  Solutions,  Proprietary
Products  and Third  Party  Products.  Solutions  revenue  include  consulting
services for both  commercial and government  customers.  Proprietary  Product
revenue  includes the sale of  INQUIRE/Text  products and services and related
maintenance, and sales of the Company's plug-in based software products. Third
Party  Products  include  software and hardware  sold to both  government  and
commercial  customers.  Total revenue  increased by  $2,751,000,  or 27%, from
$10,271,000  for the year ended December 31, 1999 to $13,022,000  for the year
ended December 31, 2000. Revenue for each period consisted of the following:
<TABLE>
<CAPTION>

                                                  (Dollar Amounts in Thousands)
                                                       Twelve Months Ended
                                  December 31, 2000       December 31, 1999    Increase (Decrease) %
                                  -----------------       -----------------    ---------------------
<S>                                <C>                     <C>                       <C>
                 Solutions
                 ---------
        Business Solutions         $      5,897            $       2,593             127%
              Intelligence                4,282                    2,992              43%
                   INQUIRE                  369                      534             (31%)

                                  ------------------------------------------------------------------
   Total Solutions Revenue         $     10,548            $       6,119              72%
                                  ==================================================================

      Proprietary Products

        Compose and Others         $        705                    1,398             (50%)
              INQUIRE/Text                1,044                    1,299             (20%)
                                  ------------------------------------------------------------------
Total Proprietary Products
                   Revenue         $      1,749            $       2,697             (35%)
                                  ==================================================================

Total Third Party Products
                   Revenue         $        725            $       1,455             (50%)
                                  ==================================================================

             Total Revenue         $     13,022            $      10,271              27%

                                  ==================================================================
</TABLE>

Revenue  from  Solutions  increased  overall  by  $4,429,000,   or  72%,  from
$6,119,000 for the year ended  December 31, 1999 to  $10,548,000  for the year
ended December 31, 2000 including sales to related parties amounting to $0 and
$1,677,000,  respectively.  The Business  Solutions  unit within the Solutions
segment  increased by $3,304,000,  or 127%, from $2,593,000 for the year ended
December 31, 1999 to  $5,897,000  for the year ended  December 31, 2000 due to
increases in consulting  services.  For the year ended December 31, 1999, loss
of revenue of $372,000 for training and Mountain  View  consulting  due to the
de-emphasis  of those  operations  was  more  than  offset  by  $2,046,000  of
e-commerce  B2B  revenue  that  was  recognized  in the year  2000.  Excluding
training and Mountain View revenue the Business Solutions revenue increased by
$3,676,000,  or 172%,  from $2,137,000 for the year ended December 31, 1999 to
$5,813,000 for the year ended December 31, 2000.  The  Intelligence  Solutions
unit within the  Solutions  segment  increased  by  $1,290,000,  or 43%,  from
$2,992,000  for the year ended  December 31, 1999 to  $4,282,000  for the year
ended December 31, 2000, due to an increase in classified government work. The
INQUIRE Solutions unit within the Solutions segment decreased by $255,000,  or
20%, from  $1,299,000  for the year ended  December 31, 1999 to $1,044,000 for
the year ended December 31, 2000 due to a decline in INQUIRE/Text  maintenance
and INQUIRE consulting services.

Proprietary Product revenue decreased by $948,000, or 35%, from $2,697,000 for
the year ended December 31, 1999 to $1,749,000 for the year ended December 31,
2000.  There were  declines  in Aerial,  Re:mark  and other  related  products

                                     -5-

<PAGE>


partially  offset by an  increase  in Compose  and  related  maintenance.  The
Company expects that  INQUIRE/Text  related revenue should continue to decline
over time as customers move applications off mainframes.

Gross Profit

Gross profit  decreased by $55,000,  or 2%, from $2,835,000 for the year ended
December 31, 1999 to  $2,780,000  for the year ended  December  31, 2000.  The
decrease  was due to the  declining  sales of  certain  proprietary  products,
Aerial and Re:mark,  INQUIRE/Text maintenance revenue, a write-down of revenue
of $188,000 due to the settlement of a related party receivable, lower margins
and cost overruns on various fixed priced contracts. Gross margin as a percent
of revenue  decreased  by 7% from 28% for the year ended  December 31, 1999 to
21% for the year ended December 31, 2000. The decrease in gross margin was due
to reductions in INQUIRE/Text  maintenance  revenue and proprietary  products,
which have  higher  gross  margins and cost  overruns  on certain  fixed price
contracts and lower margins on related party sales to Redknife and Claria.

Research and Development Expenses

Research and development  expenses decreased  $305,000,  or 45%, from $684,000
for the year ended  December 31, 1999 to $379,000 for the year ended  December
31, 2000.  The overall  decrease was  attributed to the Company's  decision to
reduce  deployment  on certain  proprietary  products even though there was an
increase in spending for the enhancement of an existing product.

Selling, General and Administrative Expenses

Selling,  general and administrative  expenses decreased $473,000, or 9%, from
$5,249,000  for the year ended  December 31, 1999 to  $4,776,000  for the year
ended  December 31, 2000.  The decrease was  primarily  due to  reductions  in
selling costs.

Goodwill Impairment

Goodwill  impairment  losses of $2,122,000  were  recognized in the year ended
December 31, 1999.  Of that amount,  $1,941,000  resulted  from the  Company's
decision  during  the  second  quarter  of 1999 to close the  Ambia  office in
Mountain View,  California and $181,000 was  attributable  to the write-off of
goodwill relating to Merex, Inc. There were no similar write-downs in 2000.

Interest Income and Expense

Interest income decreased  $88,000,  from $188,000 for the year ended December
31, 1999 to $100,000 for the year ended  December  31, 2000.  The decrease was
due to lower balances of cash, cash  equivalents,  and short-term  investments
during the year ended December 31, 2000.

Interest expense  increased  $26,000,  from $2,000 for the year ended December
31, 1999 to $28,000 for the year ended December 31, 2000. The increase was due
to the Company's  utilization  of its line of credit due to increased  working
capital needs during the year ended December 31, 2000.

Net Loss

As a result of the above,  the Company  incurred a net loss of $2,303,000,  or
$.49 per share,  for the year ended December 31, 2000,  compared to a net loss
of $5,034,000, or $1.11 per share, for the prior year.

                                     -6-

<PAGE>


Liquidity and Capital Resources

At December 31, 2000, the Company had cash,  cash  equivalents  and short-term
investments of $821,000 and working capital of $422,000. The Company maintains
a line  of  credit  with  Merrill  Lynch  Business  Financial  Services,  Inc.
("MLBFS") for up to $1,000,000  based upon eligible  receivables.  Interest on
this debt is  calculated at a per annum rate equal to the sum of 2.9% plus the
30-day  commercial  paper rate.  Currently,  this per annum rate  approximates
prime. The facility expires on April 30, 2001. As discussed below, the Company
currently is not in  compliance  with two  covenants  under the line of credit
agreement.  As a result,  MLBFS has several options  available to it including
accelerating all amounts due under the line.

The Company is currently negotiating the terms (including the covenants) of an
extension of the line of credit.

The line of credit is contingent  upon the Company  continuing to meet certain
general funding  requirements,  including the absence of any material  adverse
change  in the  Company's  business  or  financial  condition,  the  continued
accuracy of the Company's  representations and warranties and the provision of
annual and quarterly  financial  information.  The Company is currently not in
compliance with two covenants  associated with the line of credit.  First, the
Company is required to maintain a tangible  net worth of at least $ 2,500,000.
As of December 31, 2000, tangible net worth was $933,000.  Second, the Company
is  required  to  maintain  not more than a 1.1 to 1.0 ratio of total  debt to
tangible net worth.  As of December  31, 2000,  the total debt to tangible net
worth ratio was 3.5 to 1.0.

Net cash used in operating  activities for the year ended December 31, 2000 of
$2,386,000  was due to the  Company's  net  loss of  $2,303,000.  The  primary
adjustments to the net loss to arrive at net cash used in operating activities
included  (i)  increases  primarily  attributable  to an  increase in accounts
payable  and  accrued  expenses  ($820,000),  goodwill  and  other  intangible
amortization  ($329,000),  and depreciation and amortization  ($226,000);  and
(ii) decreases primarily  attributable to an increase in accounts  receivables
of ($1,529,000).

Net cash  provided by  investing  activities  of  $861,000  for the year ended
December 31, 2000 was derived primarily by the maturing of various  short-term
investments  offset by the purchase of property and equipment and reinvestment
of proceeds from maturing investments.

Net cash provided by financing  activities of $917,000 arose from the proceeds
of the exercising of employee  stock options and purchases  under the employee
stock  purchase  plan which  amounted to  $217,000  and net  borrowings  under
short-term debt of $ 700,000.

The  accompanying  consolidated  financial  statements have been prepared on a
going  concern  basis,  which  contemplates  the  realization  of  assets  and
satisfaction  of  liabilities  in the normal course of business.  However,  as
reflected in the accompanying  consolidated financial statements,  the Company
continues to suffer recurring  losses from operations  resulting in a negative
cash flow from operations. In addition, the Company was not in compliance with
certain  covenants of its credit facility which expires April 30, 2001.  These
factors,  including the  uncertainty  surrounding  whether and when additional
financing  will be  secured  and  whether  the  Company  will meet its  budget
expectations  and bank  covenants  indicate  that the Company may be unable to
continue as a going  concern for a reasonable  period of time.  The  financial
statements do not include any adjustments  relating to the  recoverability  of
assets and  classification  of liabilities  that might be necessary should the
Company be unable to continue as a going concern.  The Company's  continuation
as a going concern is dependent on its ability to obtain additional financing,
meet its 2001 budgeted cash flow objectives,  and comply with the terms of its
credit facility.

The Company  believes that it will be able to negotiate  favorable  terms with
its lender and meet its projected budget projections. However, there can be no
assurance that the Company will be able to secure financing sufficient for its
needs and at terms  favorable  to the Company.  Additionally,  there can be no
assurance that the Company will be successful in meeting  budget  expectations
and bank  covenants  in 2001.  Failure  by the  Company  to obtain  sufficient
financing, meet its budget expectations, or meet its bank covenants may have a
material  adverse  effect on the  Company's  financial  position,  results  of
operations or cash flows.

                                     -7-

<PAGE>


On February 9, 2001,  the Company  sold its  holdings of common and  preferred
stock of Buckaroo.com, Inc., a Silicon Valley-based on-line commodity exchange
site that serves the computer  chip  market,  to six private  investors  for a
total of $1,092,740.  The Company originally obtained such shares in July 1999
for $24,575.  As a result of the sale of such shares,  the Company  recorded a
gain of  $1,068,165  during the first  quarter of 2001.

Item 7. Financial Statements

The consolidated financial statements required hereunder are listed under Item
13(a) below.

PART III

Item 13. Exhibits, List and Reports on Form 8-K

(a)       FINANCIAL STATEMENTS. The financial statements and exhibits required
          by  Item  7  and   this   Item  13  of  Form   10-KSB   are   listed
          below.

          Index to Consolidated Financial Statements:                 Page

          Report of Independent Accountants.....................        9

          Consolidated  Statements  of  Operations - Each of
          the two years in the  period  ended  December  31,
          2000..................................................       10

          Consolidated  Balance  Sheets - December  31, 2000
          and 1999.............................................     11-12

          Consolidated  Statements of  Shareholders'  Equity
          for  each of the two  years  in the  period  ended
          December 31, 2000.....................................       13

          Consolidated  Statements of Cash Flows for each of
          the two years in the  period  ended  December  31,
          2000..................................................       14

          Notes  to  Consolidated   Financial  Statements  -
          December 31, 2000 and 1999............................    15-27


(b)       Reports on Form 8-K.

On December 29, 2000,  the Company filed a Current  Report on Form 8-K,  dated
December 15, 2000, to disclose 1) that  negotiations on a $26 million contract
with the  government had been  concluded,  2) the Company had received over $2
million in new  services  and  software  commitments,  and 3) the  Company had
received  verbal   commitments   from  several  parties  to  purchase  certain
non-marketable  investment  assets  it held in  Buckaroo.com,  Inc.  No  other
Current  Reports on Form 8-K were filed during the quarter ended  December 31,
2000.

EXHIBIT INDEX


Exhibit Number                              Description
 -------------                              -----------
   23                           Consent of PricewaterhouseCoopers LLP

                                     -8-

<PAGE>


                       Report of Independent Accountants


To the Board of Directors and Shareholders of Infodata Systems Inc.

In our opinion,  the accompanying  consolidated balance sheets and the related
consolidated  statements of  operations,  shareholders'  equity and cash flows
present fairly, in all material  respects,  the financial position of Infodata
Systems  Inc.  and its  subsidiaries  at December  31, 2000 and 1999,  and the
results of their  operations and their cash flows for each of two years in the
period ended  December 31, 2000,  in  conformity  with  accounting  principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's  management;  our responsibility is to
express an opinion  on these  financial  statements  based on our  audits.  We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and  perform  the audit to  obtain  reasonable  assurance  about  whether  the
financial  statements  are free of material  misstatement.  An audit  includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the  financial  statements,  assessing  the  accounting  principles  used  and
significant estimates made by management, and evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

The  accompanying  financial  statements have been prepared  assuming that the
Company  will  continue  as a going  concern.  As  discussed  in Note 1 to the
consolidated  financial statements,  the Company has suffered recurring losses
from operations and is in default with certain  financial  covenants under its
credit facility which expires on April 30, 2001 that raise  substantial  doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include  any   adjustments   that  might  result  from  the  outcome  of  this
uncertainty.


/s/ PricewaterhouseCoopers LLP
McLean, Virginia
March 15, 2001

                                     -9-

<PAGE>


                    INFODATA SYSTEMS INC. AND SUBSIDIARIES
                     Consolidated Statements of Operations
                     (In thousands, except per share data)
<TABLE>
<CAPTION>

                                                                                   Year Ended
                                                                                  December 31,

                                                                              2000           1999
                                                                              ----           ----

<S>                                                                          <C>          <C>
     Revenue (including related party sales of $1,677 in 2000)......         $13,022      $10,271

     Cost of revenue                                                          10,242        7,436
                                                                             -------      -------

              Gross profit..........................................           2,780        2,835
                                                                             -------      -------

     Operating expenses:
                   Research and development.........................             379          684
                   Selling, general and administrative..............           4,776        5,249
                   Goodwill impairments.............................                        2,122
                                                                             -------      -------
                                                                                   -
                                                                               5,155        8,055

              Operating loss........................................          (2,375)      (5,220)

     Interest income................................................             100          188
     Interest expense...............................................             (28)          (2)
                                                                             -------      --------

     Net loss ......................................................         $(2,303)     $(5,034)
                                                                             =======      ========

     Net loss per share:
              Basic and diluted.....................................         $  (.49)     $ (1.11)
                                                                             =======      =========

     Weighted average shares outstanding (basic and diluted) .......           4,666        4,541
                                                                             -------      --------
</TABLE>

The accompanying  notes are an integral part of these  consolidated  financial
satements.

                                     -10-

<PAGE>


                    INFODATA SYSTEMS INC. AND SUBSIDIARIES
                          Consolidated Balance Sheets
                (In thousands, except share and per share data)
<TABLE>
<CAPTION>


           Assets
                                                                                                   December 31,
                                                                                               2000           1999
                                                                                               ----           ----
           Current assets:
<S>                                                                                         <C>            <C>
                    Cash and cash equivalents...................................            $  321         $  929
                         Short-term Investments ................................               500          1,700
                    Accounts receivable, net of allowance of $46 in 2000
                      and $56 in 1999...........................................             2,583          1,358
                         Related party receivable, current......................               151              -
                    Other current assets........................................                90             93

                             Total current assets...............................             3,645          4,080


           Property and equipment:
                    Furniture and equipment.....................................             3,303          3,006
                    Less accumulated depreciation and amortization..............            (2,999)        (2,773)
                                                                                               304            233

           Goodwill and other intangibles, net of accumulated amortization of
                  $3,778 in 2000 and $3,450 in 1999.............................               102            247
           Related party receivable.............................................               151              -
           Other assets.........................................................                56             76
                                                                                            -------         ------

           Total assets.........................................................            $4,258         $4,636
                                                                                            =======        =======
</TABLE>

The accompanying  notes are an integral part of these  consoldiated  financial
statements.

                                     11-
<PAGE>


                    INFODATA SYSTEMS INC. AND SUBSIDIARIES
                          Consolidated Balance Sheets
                                  (Continued)
                (In thousands, except share and per share data)
<TABLE>
<CAPTION>

Liabilities and Shareholders' Equity
                                                                           December 31,
                                                                        2000         1999
                                                                        -----------------
<S>                                                                 <C>          <C>
Current liabilities:
         Line of credit    ...............................          $    722     $     -
         Accounts payable  ...............................               588         317
         Accrued expenses  ...............................             1,323         833
         Deferred revenue  ...............................               590         621
                                                                    --------       -----

                  Total current liabilities...............             3,223       1,771

Commitments and contingencies
Shareholders' equity:

     Preferred stock, $1.00 par value, 340,000 shares
      authorized, none issued and outstanding.............                 -           -

     Common stock, $.03 par value, 12,000,000 shares
      authorized; 4,705,174 and 4,552,075 shares issued and
      outstanding in 2000 and 1999, respectively..........               141          136
         Additional paid-in capital.......................            20,161       19,693
         Accumulated deficit..............................           (19,267)     (16,964)
                                                                    ---------     --------
Total shareholders' equity................................             1,035        2,865
                                                                    ---------     --------
Total liabilities and shareholders' equity................          $  4,258     $   4,636
                                                                    =========    =========
</TABLE>

The accompanying  notes are an integral part of these  consoldiated  financial
statements.

                                     -12-

<PAGE>


                    INFODATA SYSTEMS INC. AND SUBSIDIARIES

                Consolidated Statements of Shareholders' Equity
                       (In thousands, except share data)
<TABLE>
<CAPTION>

                                                                         Additional                             Total
                                                Common Stock               Paid-In        Accumulated       Shareholders'
                                            Shares         Amount          Capital          Deficit            Equity
                                         ---------------------------------------------------------------------------------

<S>                                      <C>               <C>            <C>               <C>                <C>
 Balance at December 31, 1998 ....       4,507,117         $ 135          $19,548           $(11,930)          $ 7,753
 Compensation expense.............              --            --               43                 --                43
 Employee stock purchase plan...            37,341             1               63                 --                64
 Exercise of employee stock options          5,061            --                9                 --                 9
 Shares received and cancelled for
    consideration for notes
    receivable by
    shareholder........................    (15,000)           --              (30)                --               (30)

 Stock issued to Board of Directors
    for Services..................          17,556            --               60                 --                60
 Net loss                                       --            --               --             (5,034)           (5,034)
                                         ----------                       --------          ---------

 Balance at December 31, 1999.....       4,552,075         $ 136          $19,693           $(16,964)          $ 2,865
                                         ----------       -------         --------          ---------          --------


 Employee stock purchase plan.....          33,170             1               63                                   64
 Exercise of stock options........          52,431             2              151                                  153
 Stock issued to Board of Directors
    for services..................          27,498             1               58                                   59
 Issuance of warrants for services               -             -               55                                   55
 Earthsat Acquisition.............          40,000             1              141                                  142
 Net loss.........................              --            --               --             (2,303)           (2,303)
                                         ----------       -------         --------          ---------          --------
 Balance at December 31, 2000.....       4,705,174         $ 141          $20,161           $(19,267)          $ 1,035
                                         ---------        -------         --------          ---------          --------
</TABLE>

The accompanying notes are an intergral part of these  consolidated  financial
statements.

                                     -13-

<PAGE>


                             INFODATA SYSTEMS INC.

                     Consolidated Statements of Cash Flows
                                (In thousands)
<TABLE>
<CAPTION>


                                                                                                       Year Ended
                                                                                                      December 31,
                                                                                                 2000              1999
                                                                                               ---------------------------
<S>                                                                                            <C>              <C>
Cash Flows From Operating Activities:
      Net loss .................................................................               $(2,303)         $(5,034)
     Adjustments to reconcile net loss to net cash used in operating activities:
       Stock Based Compensation expense.........................................                    55               43
       Common stock issued to Board of Directors................................                     -               60
       Depreciation and amortization............................................                   226              355
       Goodwill and other intangible amortization...............................                   329              429
       Goodwill impairment......................................................                     -            2,122
     Accrued interest on line of credit.........................................                    22                -
     Provision for doubtful accounts ...........................................                   (10)             (39)
     Payments received on related party receivable..............................                    12                -
     Changes in operating assets and liabilities:
       Accounts receivable......................................................                (1,529)           1,037
       Other assets.............................................................                    23              163
       Accounts payable ........................................................                   271             (469)
       Accrued expenses.........................................................                   549             (253)
       Deferred revenue.........................................................                   (31)            (531)
                                                                                                -------          -------
       Net cash used in operating activities....................................                (2,386)          (2,117)
                                                                                                -------          -------
Cash Flows From Investing Activities:
       Purchases of property and equipment......................................                  (297)            (194)
       Purchases of short-term investments......................................                (1,300)          (4,330)
       Business acquisition costs...............................................                   (42)               -
       Proceeds from maturity of short-term investments.........................                 2,500            5,303
                                                                                                -------          -------
         Net cash provided by investing activities..............................                   861              779
                                                                                                -------          -------
Cash Flows From Financing Activities:
       Payments on capital lease obligations....................................                     -               (6)
       Net borrowings under short-term debt ....................................                   700                -
       Issuance of common stock ................................................                   217               73
                                                                                                -------          -------
         Net cash provided by financing activities..............................                   917               67
                                                                                                -------          -------
     Net decrease in cash and cash equivalents..................................                  (608)          (1,271)
     Cash and cash equivalents at beginning of period...........................                   929            2,200
                                                                                                -------          -------
     Cash and cash equivalents at end of period.................................                  $321             $929
                                                                                                =======          =======
</TABLE>

The accompanying notes are an intergral part of these  consolidated  financial
statements.

                                     -14-

<PAGE>


                             INFODATA SYSTEMS INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Summary of Significant Accounting Policies

Nature of Business

The Company, a Virginia corporation, is an information technology professional
services  firm that  designs,  develops  and  implements  web-based  knowledge
management (KM),  content  management and e-Commerce  solutions for commercial
and government clients.

The  accompanying  consolidated  financial  statements have been prepared on a
going  concern  basis,  which  contemplates  the  realization  of  assets  and
satisfaction  of  liabilities  in the normal course of business.  However,  as
reflected in the accompanying  consolidated financial statements,  the Company
continues to suffer recurring  losses from operations  resulting in a negative
cash flow from operations. In addition, the Company was not in compliance with
certain  covenants of its credit  facility  which expires April 30, 2001 (Note
5). These  factors,  including the  uncertainty  surrounding  whether and when
additional  financing  will be secured and  whether the Company  will meet its
budget expectations and bank covenants indicate that the Company may be unable
to continue as a going concern for a reasonable  period of time. The financial
statements do not include any adjustments  relating to the  recoverability  of
assets and  classification  of liabilities  that might be necessary should the
Company be unable to continue as a going concern.  The Company's  continuation
as a going concern is dependent on its ability to obtain additional financing,
meet its 2001 budgeted cash flow objectives,  and comply with the terms of its
credit facility.

The Company  believes that it will be able to negotiate  favorable  terms with
its lender and meet its projected budget projections. However, there can be no
assurance that the Company will be able to secure financing sufficient for its
needs and at terms  favorable  to the Company.  Additionally,  there can be no
assurance that the Company will be successful in meeting  budget  expectations
and bank  covenants  in 2001.  Failure  by the  Company  to obtain  sufficient
financing, meet its budget expectations, or meet its bank covenants may have a
material  adverse  effect on the  Company's  financial  position,  results  of
operations or cash flows.

Principles of Consolidation

The accompanying  consolidated  financial  statements  include the accounts of
Infodata Systems Inc. and its wholly owned subsidiaries (collectively referred
to  herein  as the  "Company").  All  significant  intercompany  accounts  and
transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial  statements in conformity with generally accepted
accounting  principles  requires  management to make estimates and assumptions
that affect the reported  amounts of assets and  liabilities and disclosure of
contingent assets and liabilities at the date of the financial  statements and
the reported  amounts of revenues and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Revenue Recognition

The  Company  recognizes  revenue  from  the  sale  of  software  licenses  in
accordance   with   Statement  of  Positions  No.  97-2,   "Software   Revenue
Recognition", as amended. Revenue from license arrangements is recognized upon
shipment of the product when  persuasive  evidence of an  arrangement  exists,
delivery has occurred, the fee is fixed and determinable and collectibility is
probable.   If  an  ongoing  vendor   obligation   exists  under  the  license
arrangement,  revenue is deferred based on vendor-specific  objective evidence
of the undelivered  element.  If  vendor-specific  objective evidence does not
exist for all undelivered  elements,  all revenue is deferred until sufficient
evidence  exists or all  elements  have been  delivered.  Revenue  from annual
maintenance  and support is deferred and  recognized  ratably over the term of
the contract.  Revenue from consulting and training is deferred and recognized
when the services are performed and collectibility is deemed probable. Revenue
from  consulting  and  professional  services  contracts is  recognized on the
percentage-of-completion  method for fixed price contracts and on the basis of
hours  incurred at contract  rates for time and materials  contracts.  Revenue

                                     -15-

<PAGE>


                             INFODATA SYSTEMS INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


from cost  reimbursement  contracts is recognized  as costs are incurred.  Any
amounts  paid by  customers  prior to the actual  performance  of services are
recorded  as  deferred  revenue  until  earned,  at which time the amounts are
recognized in accordance with the type of contract.

The Company also provides  off-the-shelf hardware and software products to the
U.S.  government under the GSA Schedule Contract and to commercial  companies.
The related  revenue is recognized when products are shipped or when customers
have accepted the products, depending on contractual terms.

Revenue from foreign customers totaled approximately $496,000 and $425,000 for
the years ended December 31, 2000 and 1999, respectively.

Stock Compensation

Statement  of  Financial   Accounting   Standards  No.  123,  "Accounting  for
Stock-Based  Compensation"("SFAS  123"),  encourages,  but  does  not  require
companies to record  compensation cost for stock-based  employee  compensation
plans at fair  value.  The  Company  has  chosen to  account  for  stock-based
compensation  using  the  intrinsic  value  method  prescribed  in  Accounting
Principles  Board Opinion No. 25,  "Accounting for Stock Issued to Employees",
and related Interpretations.  Accordingly, compensation cost for stock options
is  measured  as the  excess,  if any,  of the  estimated  fair  value  of the
Company's  stock at the date of the grant over the amount an employee must pay
to  acquire  the  stock.  The  Company  has  adopted  the  "disclosure   only"
alternative  described in SFAS 123 which requires pro forma disclosures of net
income and earnings per share as if the fair value  method of  accounting  has
been applied.

Cash and Cash Equivalents

Highly liquid  investments  with an original  maturity of three months or less
are  classified  as cash  equivalents.  These  investments  consist  of income
producing securities,  which are readily convertible to cash and are stated at
cost, which approximates fair value.

Short-term Investments

In  addition  to  cash  equivalents,  the  Company  has  investments  in  debt
securities  (certificates  of deposit  and  commercial  paper)  with  original
maturities  of greater than three  months that are  classified  as  short-term
investments.  These  investments  are carried at  amortized  cost plus accrued
interest.  Accrued  interest on these  investments as of December 31, 2000 and
1999 was $17,000 and $55,000, respectively.

Supplemental Disclosures of Cash Flow Information

Cash  payments  for  interest  totaled  $6,800  and  $2,000  in 2000 and 1999,
respectively.
<TABLE>
<CAPTION>


Supplemental disclosure of cash flow information:                                        2000             1999
                                                                                         ----             ----

<S>                                                                                      <C>              <C>
             Non-cash investing activities:
             Acquisition of investment in exchange for property
              and equipment.....................................................           -              $25
             Stock received and cancelled in consideration of
              notes receivable from shareholders. ..............................           -              (30)
             Business acquisition in exchange for Common Stock..................         142                -
             Common stock issued to Board of Directors..........................          59                -
</TABLE>

                                     -16-

<PAGE>

                             INFODATA SYSTEMS INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Property and Equipment

Property  and  equipment  is  depreciated  using  the  straight-line   method.
Depreciation on equipment and furniture is computed using the estimated useful
lives  of  the  assets,  which  range  from  three  to  six  years.  Leasehold
improvements are amortized over the shorter of the useful life of the asset or
the lease term.

Impairment of Long-lived Assets

The Company periodically  evaluates the carrying value of long-lived assets to
be held and used,  primarily  property and equipment  and goodwill,  under the
provisions of Statement of Financial  Accounting Standard No. 121, "Accounting
for the  Impairment  of  Long-Lived  Assets  and for  Long-Lived  Assets to be
Disposed of" (SFAS 121). The carrying value of long-lived assets is considered
impaired when the  separately  identifiable  undiscounted  cash flows from the
asset is less than its carrying  value.  In addition,  the  recoverability  of
goodwill is further  evaluated  under the provisions of Accounting  Principles
Board Opinion No. 17, "Intangible Assets", based upon undiscounted cash flows.
In the event that the carrying amount exceeds  undiscounted cash flows, a loss
is recognized based on the amount by which the carrying value exceeds the fair
value of the asset.  Fair value is determined using the anticipated cash flows
discounted at a rate commensurate with the risk involved.

Goodwill

Goodwill is being amortized using the straight-line method over a life ranging
from 18 months to ten years.

Research and Development

Research and development costs are expensed as incurred.

Income Taxes

The  Company  uses the asset and  liability  method of  accounting  for income
taxes.  Under  the  asset  and  liability  method,  deferred  tax  assets  and
liabilities  are recognized for the future tax  consequences  attributable  to
differences between the financial statement carrying amounts and the tax basis
of  existing  assets and  liabilities.  A valuation  allowance  is recorded to
reduce tax assets to an amount whose realization is more likely than not.

Earnings Per Share

Basic  earnings  per share is based on the weighted  average  number of common
shares  outstanding.  Diluted  earnings  per  share is  based on the  weighted
average number of common shares  outstanding and all dilutive potential common
shares  outstanding.  Dilutive  equivalent shares consist of stock options and
warrants using the treasury stock method.

Due to the loss in 2000 and  1999,  the  effect of  options  and  warrants  as
disclosed in Note 6 has not been considered on dilutive  earnings per share as
this would have been antidilutive.

Significant Customers

The Company's largest customer is the federal government,  and the Company has
a concentration  of credit risk associated with its accounts  receivable.  The
Company  does  not  believe  the  likelihood  of  a  loss  arising  from  such
concentration is significant.  The Company performs ongoing credit evaluations
on its customers.

Sales  to  U.S.  government  agencies  totaled  approximately  $6,531,000  and
$6,680,000 in 2000 and 1999,  respectively.  As of December 31, 2000 and 1999,
accounts  receivable  due from U.S.  government  agencies  were  approximately
$1,098,000 and $739,000, respectively.

                                     -17-

<PAGE>


                             INFODATA SYSTEMS INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Financial Instruments

Financial   instruments   include  cash  and  cash   equivalents,   short-term
investments,  accounts receivable,  and accounts payable. The carrying amounts
of financial  instruments  approximate fair value due to the short maturity of
these instruments.

Segment Reporting


The Company  adopted  Statement of  Financial  Accounting  Standards  No. 131,
"Disclosures about Segments of an Enterprise and Related Information",  during
1999. SFAS 131 replaces the "industry  segment" approach with the "management"
approach to reporting  financial  information about an enterprise's  segments.
The management approach  designates the internal  organization that is used by
management for allocating resources and assessing performance as the source of
the Company's  reportable  segments.  SFAS 131 also requires disclosures about
products and services, geographic areas, and major customers.

Comprehensive Income

The Company does not have any  components of  comprehensive  income other than
net loss.

New Accounting Pronouncements

SFAS 140,  "Accounting  for Transfers  and  Servicing of Financial  Assets and
Extinguishments of Liabilities"  ("SFAS 140") was issued in September 2000 and
establishes  accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. SFAS 140 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. The Company anticipates that SFAS 140 will not
have a  material  impact  on the  Company's  financial  position,  results  of
operations or cash flows.

On January 1, 2001, the Company will adopt Financial  Accounting  Standard No.
133  ("SFAS  133"),   "Accounting  for  Derivative   Instruments  and  Hedging
Activities."  SFAS 133 establishes new accounting and reporting  standards for
derivative  financial  instruments and hedging  activities.  SFAS 133 requires
that all  derivative  instruments  be recorded  on the  balance  sheet at fair
value.  Changes in fair  value of  derivatives  are  recorded  each  period in
current  earnings  or other  comprehensive  income,  depending  on  whether  a
derivative  is  designated  as  part  of a  hedge  transaction  and  if it is,
depending on the type of hedge  transaction.  The Company  presently  does not
anticipate  the adoption of this standard  will have a material  impact on the
Company.

Adoption of Accounting Pronouncement

In December 1999, the Securities and Exchange  Commission ("SEC") issued Staff
Accounting  Bulletin No. 101 ("SAB 101").  SAB 101  summarizes  certain of the
SEC's views in applying  generally accepted  accounting  principles to certain
revenue  transactions in financial  statements effective the fourth quarter of
2000. The adoption of the SAB did not have a material  impact on the financial
position of the Company.

NOTE 2. Goodwill Impairment

For the year ended December 31, 1999, the Company  determined  that impairment
existed  with  respect  to its  goodwill  arising  from its  AMBIA  and  MEREX
acquisitions.  Accordingly,  the Company  adjusted the  carrying  value of its
AMBIA and MEREX goodwill to its estimated value of approximately  $247,000 and
$0 at December  31,  1999  resulting  in  impairment  losses of  approximately
$1,941,000 and $181,000, respectively.

                                     -18-

<PAGE>

                             INFODATA SYSTEMS INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. Accounts Receivable

Accounts receivable consist of the following:


                                                              December 31,
                                                         2000          1999
                                                         ----          ----
       U.S. government:
         Amounts billed..............................  $1,098,000   $  739,000
         Recoverable costs and accrued profit
          on progress completed but not billed.......     482,000      277,000
                                                       -----------   ----------
                                                        1,580,000    1,016,000
                                                       -----------   ----------

       Commercial customers:
        Amounts billed..............                      680,000      215,000
        Recoverable costs and accrued profit
         on progress completed but not billed........     369,000      183,000
                                                       -----------   ----------
                                                        1,049,000      398,000
                                                       -----------   ----------
       Less allowance for doubtful accounts..........     (46,000)     (56,000)
                                                       -----------   ----------

             Total...................................  $2,583,000    $1,358,000
                                                       ===========   ==========

NOTE 4. Income Taxes

At  December  31,  2000,  the  Company had  approximately  $15,793,000  in net
operating loss carryforwards for income tax reporting purposes.  The operating
loss  carryforwards  expire in varying  amounts  from 2000  through  2020.  In
addition,  at December 31, 2000, the Company had $171,000 in general  business
tax credit carryforwards which begin to expire in 2017.

The actual income tax expense attributable to pretax income for the year ended
December 31, 2000,  and December  31, 1999,  respectively,  differed  from the
amount  computed by applying the Federal  statutory rate of 34% as a result of
the     following:


                                             2000         1999
                                             ----         ----


     Tax at statutory rate..........      $ (783,000)   $(1,712,000)
     Change in valuation allowance...      1,409,000      1,212,000
     Nondeductible amortization......        112,000        867,000
     Other...........................       (738,000)      (367,000)
                                          -----------   ------------
                                          $        -    $         -
                                          ===========   ============

The  significant  components of net deferred tax  (liabilities)  assets are as
follows as of December 31, 2000 and 1999:

                                                        2000          1999
                                                        ----          ----

     Deferred tax assets:
        Net operating loss carryforward.............. 5,995,000      4,876,000
      General business tax credit and research and
         development tax credits carryforward........   171,000         55,000
      Other..........................................   334,000        160,000
                                                      ----------     ----------
           Valuation allowance ...................... 6,500,000)    (5,091,000)
                                                      ----------   ------------
           Net deferred tax asset ................... $       -    $         -
                                                      ==========   ============

                                     -19-

<PAGE>


                             INFODATA SYSTEMS INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Under the  provisions  of  Statement of Financial  Accounting  Standards  109,
"Accounting  for Income  Taxes," the tax effect of the net operating  loss and
general  business  tax  credit  carryforwards,  together  with  net  temporary
differences,  represents a net deferred tax asset against which management has
fully reserved due to the uncertainty of future taxable income.

NOTE 5. Short-term Debt

The Company  maintains a working  capital  line of credit with  Merrill  Lynch
Business Financial Services Inc. ("MLBFS").  This credit facility provides the
Company  with up to a  $1,000,000  line of credit at a per annum rate equal to
2.9 percent over the 30-day commercial paper rate.  Currently,  this per annum
rate approximates the prime rate (9.45% at December 31, 2000). Advances on the
facility are based on eligible  billed  accounts  receivable less than 90 days
old. The facility presently expires on April 30, 2001. As of December 31, 2000
and 1999, the Company had  outstanding  borrowings of $722,000 (which included
$22,000 of accrued interest) and $0 against this line of credit.

The line of credit is contingent  upon the Company  continuing to meet certain
general funding  requirements,  including the absence of any material  adverse
change  in the  Company's  business  or  financial  condition,  the  continued
accuracy of the Company's  representations and warranties and the provision of
annual and quarterly  financial  information.  The Company is currently not in
compliance with two covenants  associated with its line of credit.  First, the
Company is required to maintain a tangible  net worth of at least $ 2,500,000.
As of December 31, 2000, tangible net worth was $933,000.  Second, the Company
is  required  to  maintain  not more than a 1.1 to 1.0 ratio of total  debt to
tangible net worth.  As of December  31, 2000,  the total debt to tangible net
worth  ratio was 3.5 to 1.0. As a result of these  non-compliances,  MLBFS has
several options  available to it including  accelerating all amounts due under
the line.

The Company is currently negotiating the terms (including the covenants) of an
extension  of the  line  of  credit.  There  can be no  assurances  that  such
negotiations will be successful.


NOTE 6. Shareholders' Equity

Common Stock

On March 30, 2000, the Company  acquired a business unit from Earth  Satellite
Corporation  specializing in providing  software  development  services to the
U.S. intelligence community.  The Company issued 40,000 shares of Common Stock
with a per share  fair  value of  $3.563,  equal to the  trading  price of the
Company's  Common Stock on that date. The acquisition  cost as of December 31,
2000 was approximately  $184,000,  including $42,000 of direct cost attributed
to the business unit's sole contract. The acquisition value of the contract is
being amortized over its life of 18 months.

Stock Options and Warrants

In April 1995,  the Company's  shareholders  approved the adoption of the 1995
Stock Option Plan (the "1995 Plan"), which (i) consolidated the Company's 1991
Incentive Stock Option Plan and 1992 Non-Qualified  Stock Option Plan and (ii)
provided  for the  automatic  grant of stock  options  to the  members  of the
Compensation  Committee  of the  Company's  Board  of  Directors.  A total  of
2,011,000  shares of Common  Stock have been  authorized  for  issuance  under
options granted and to be granted under the 1995 Plan at exercise prices which
will not be less than 100% of the fair market value of the  underlying  shares
on the  date of  grant of the  option.  Options  vest  over  varying  years of
service.  Vested options are  exercisable  until the earlier of ten years from
the date of grant or three months after  termination of employment for options
granted  under  either  the  1991  Incentive  Stock  Option  Plan or the  1992
Non-Qualified  Stock  Option  Plan.  Options  granted  under the 1995 Plan are
exercisable until the earlier of ten years from the date of grant or one month
after termination of employment.

                                     -20-

<PAGE>


                             INFODATA SYSTEMS INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As a result of the acquisition of AMBIA Corporation  ("AMBIA"),  in July 1997,
each  outstanding  option ("AMBIA Stock  Option") to purchase  shares of AMBIA
Common Stock under the former AMBIA Equity  Incentive  Plan (as defined in the
Merger  Agreement)  was  converted  into an option  ("Replacement  Option") to
acquire,  on the same terms and conditions as were applicable under such AMBIA
Stock Option,  4/45 of a share of Common Stock of the Company,  at an exercise
price of $1.69  per share  with the same  expiration  date as each such  AMBIA
Stock Option.  Replacement Options to purchase a total of 34,665 shares of the
Company's  Common Stock were granted to replace the  previously  granted AMBIA
Stock Options.

Pursuant to the Merger Agreement,  each Replacement Option is to be treated as
a  non-qualified  stock  option and, if possible,  as granted  pursuant to the
terms and  conditions  of the 1995 Plan and the AMBIA Stock  Option  agreement
entered into by AMBIA and the participant in the AMBIA Equity  Incentive Plan.
The 34,665 shares of the Company's  Common Stock  underlying  the  outstanding
Replacement  Options  are  not  included  in the  2,011,000  shares  presently
authorized under the 1995 Stock Option Plan.

As of December  31, 2000,  the Company had  reserved a total of  approximately
1,939,922  shares of Common  Stock for future  issuance  upon the  exercise of
stock options.

                                     -21-

<PAGE>

                             INFODATA SYSTEMS INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of option activity under the 1995 Plan, the Predecessor  Plans,  and
the former AMBIA Equity Incentive Plan is presented below:
<TABLE>
<CAPTION>

                                                                                         Weighted Average
                                                       Number of       Option Price          Option Price
                                                         Shares          Per Share            Per Share
                                                       ---------       ------------      -----------------

<S>                                                     <C>         <C>                       <C>
        Outstanding at December 31, 1998............    1,035,792   $1.085-$11.000            $3.563
           Granted..................................      351,475   $1.126-$ 3.250            $2.327
           Exercised ...............................       (5,061)  $1.690-$ 1.930            $1.751
           Expired/Canceled.........................     (302,362)  $1.690-$11.000            $3.857
                                                        ---------   --------------            ------
        Outstanding at December 31, 1999............    1,079,844   $1.085-$11.000            $3.087
           Granted..................................      718,586   $0.563-$ 5.438            $3.034
                                                          (52,431)  $1.090-$ 3.813            $2.949
        Exercised................................
           Expired/Canceled.........................     (245,570)  $1.250-$ 5.438            $2.998
                                                        ---------    -------------            ------
        Outstanding at December 31, 2000............    1,500,429   $0.563-$11.000            $3.081
                                                      -----------   --------------            ------
        Exercisable at December 31, 1999............      642,821   $1.085-$ 9.250            $2.989
        Exercisable at December 31, 2000............      873,917   $1.085-$ 9.250            $2.877

</TABLE>

<TABLE>
<CAPTION>

                               Outstanding and Exercisable by Price Range as of 12/31/00

                                                        Options Outstanding            Options Exercisable
                                                        -------------------            -------------------
                                                         Weighted                      Number
                                           Number         Average          Weighted    Exercisable     Weighted
                                      Outstanding        Remaining         Average      as of           Average
                 Range of                   as of       Contractual        Exercise     ----------      Exercise
                 Exercise Prices         12/31/00             Life            Price     12/31/00          Price
             ----------------------------------------------------------------------------------------------------

<S>           <C>          <C>            <C>                <C>          <C>             <C>             <C>
              $0.5625      $1.6880        178,038            6.11         $1.361          157,893         $1.345
              $1.6900      $1.8905        199,648            7.13         $1.777          124,028         $1.751
              $1.9065      $2.1250        214,472            8.33         $2.048           53,617         $2.084
              $2.2000      $2.7500        164,360            5.94         $2.452           93,206         $2.391
              $2.8750      $2.8750        338,868            6.26         $2.875          210,724         $2.875
              $2.8760      $5.0000        144,448            7.81         $4.014          109,148         $3.982
              $5.0315      $5.4375        188,553            5.81         $5.256           95,759         $5.166

              $7.0630      $11.000         72,042            1.33         $8.861           29,542         $7.264
                                        ---------            ----         ------          -------         -------
                                        1,500,429            6.47         $3.081          873,917         $2.877
</TABLE>

The Company complies with the disclosure requirements of SFAS 123, "Accounting
for Stock-Based Compensation".  The Company applies APB Opinion 25 and related
interpretations  in accounting for its plans.  Accordingly,  compensation cost
has been  recognized  for its stock plans based on the intrinsic  value of the
stock option at date of grant (i.e., the difference between the exercise price
and the fair value of the Company's Common Stock).  Had compensation  cost for
the Company's stock-based compensation plans been determined based on the fair
value at the grant  dates for awards  under those  plans  consistent  with the
method of SFAS 123, the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated below.

                                                    2000            1999
                                                    ----            ----
     Net loss as reported....................   $(2,303,000)   $(5,034,000)
     Pro forma compensation expense..........      (813,000)      (363,769)
                                                ------------   ------------
     Pro forma net loss......................   $(3,116,000)   $(5,397,769)
                                                ============   ============

                                     -22-

<PAGE>


                             INFODATA SYSTEMS INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Net loss per share:

                                                    2000            1999
                                                    ----            ----
         Basic and diluted, as reported.....      $(0.49)         $(1.11)
         Basic and diluted, pro forma.......      $(0.67)         $(1.19)

The weighted  average fair value of options granted in 2000 and 1999 was $2.45
and $1.68,  respectively.  The fair value of each option is  estimated  on the
date of grant using the Black-Scholes  option-pricing model with the following
assumptions  used for grants in 2000 and 1999: no dividend  yield and expected
life of five years, and expected volatility of 154 percent and 127 percent for
2000 and 1999, respectively. The risk-free interest rate for 2000 and 1999 was
5.5 percent.

In December  1998,  the Board of  Directors  offered to amend  options held by
certain  executives  to provide for an  exercise  price of $2.875 per share in
exchange  for the  cancellation  of 25 percent  of the  adjusted  options.  In
February  and March  1999,  approximately  115,000  stock  options to purchase
shares of common stock were exchanged pursuant to this offer for stock options
to  purchase  86,000  shares  of  common  with an  exercise  price of  $2.875.
Compensation  expense  amounting to $43,000 was recognized during 1999 related
to the exchange.

From time to time,  the Company  may be  required  to grant  stock  options as
partial or complete remuneration for services it receives.  The Company grants
such options outside the scope of its formalized 1995 Plan. As of December 31,
2000 and 1999,  options  to  purchase a total of  310,000  shares and  210,000
shares  had  been  granted  outside  the  scope  of the  1995  Plan  and  were
outstanding.

In October 2000,  the Company  issued a warrant to an investment  capital firm
with an estimated  fair value of $55,000 to purchase  100,000 shares of Common
Stock through October 2005 at an exercise price of $1.68 per share in exchange
for certain  investment  banking  services.  As of December  31,  2000,  these
warrants had not been exercised.

NOTE 7. Commitments and Contingencies

Operating Leases

The Company has entered into a lease for its corporate  headquarters  facility
in Fairfax,  Virginia.  This lease originally  expired on July 31, 1998 ("Base
Lease")  but was renewed in  November  1997 and now expires on July 31,  2003.
Under the terms of the Base Lease, the landlord  provided various  incentives,
which have been deferred and  classified as deferred rent in the  accompanying
consolidated  balance sheets.  These amounts have been amortized over the life
of the Base Lease.

Upon  completion of the AMBIA  acquisition in July 1997,  the Company  assumed
responsibility  for the lease of AMBIA's office in Mountain View,  California.
The lease  originally  expired on May 31, 1998,  but was renewed in March 1998
and now expires on May 31, 2001. The Company currently  subleases 100% of this
office  space to two third  parties  whose  sublease  payments are expected to
cover the Company's costs for that space up to May 31, 2001.

Future minimum lease payments under  non-cancelable  leases as of December 31,
2000 are as follows:

                                    Year                          Amount
                                    ----                          ------
                                    2001                     $   674,000
                                    2002                         613,000
                                    2003                         363,000
                                                               ----------
                      Total Minimum Lease Payments           $ 1,650,000
                                                             ------------
                      Less Sublease Income                   $  (101,000)
                                                             ------------
                      Net Minimum Lease Payments             $ 1,549,000
                                                             ------------

Rent expense  charged to operations  for the years ended December 31, 2000 and
1999 amounted to $800,000 and $699,000, respectively.

                                     -23-

<PAGE>


                             INFODATA SYSTEMS INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Contingencies

Costs  charged to cost-type  U.S.  government  contracts are subject to annual
audit  by  the  Defense   Contract  Audit  Agency  or  other  duly  authorized
representatives of the Federal  government.  No audits have been completed for
any periods  commencing  after 1998.  During the year 2001,  the audit for the
year  1999  will  commence  and  in the  opinion  of  management,  adjustments
resulting from the completion of such audit and future audits are not expected
to have a material  impact on the Company's  financial  position or results of
future operations.

From time to time,  the Company is subject to claims  arising in the  ordinary
course of business. In the opinion of management, no such matter, individually
or in the aggregate, exists which is expected to have a material effect on the
results of operations, cash flows or financial position of the Company.

NOTE 8. Employee Benefit Plan

In 1988, the Company established an employee benefit plan (the "Benefit Plan")
which qualifies under Section 401(k) of the Internal Revenue Code. The Benefit
Plan allows  salaried  employees to  contribute  a part of their  compensation
toward  their   retirement  on  a   tax-deferred   basis.   Required   Company
contributions  equate  to 50% of the first 6% of the  employee's  semi-monthly
deferral to the Benefit  Plan and totaled  approximately  $180,000 in 2000 and
$150,000  in  1999.  In  addition  to the  aforementioned  contributions,  the
Company,  at  the  sole  discretion  of  its  Board  of  Directors,  may  make
profit-sharing  contributions to the Benefit Plan. No contributions  were made
in 2000 or 1999.

As adopted by the Company and approved by its  shareholders  in May 1997,  the
Company established an employee stock purchase plan for all eligible employees
to purchase  shares of its Common Stock at 85% of the lower of the fair market
value  on the  first  or the last  day of each  three-month  offering  period.
Employees   may  authorize  the  Company  to  withhold  up  to  15%  of  their
compensation during any offering period,  subject to certain limitations.  The
1997  Employee  Stock  Purchase  Plan  authorizes  up to 200,000  shares to be
issued.  During  fiscal  2000 and 1999,  shares  totaling  53,289 and  38,370,
respectively,  were issued under the plan at a weighted average price of $1.14
and $1.68 per share,  respectively.  At December 31, 2000,  67,221 shares were
reserved for future issuance.

NOTE 9. Related-Party Transactions

The Company incurred management consulting fees of approximately  $106,000 and
$105,500  in 2000 and 1999,  respectively,  for  services  rendered by certain
directors  of the  Company.  Amounts  payable for these  services to companies
employing  these  directors  were $8,000 and $0 at December 31, 2000 and 1999,
respectively.

In December 1999, the Company  received  15,000 common shares from a departing
officer  valued at $30,000 and  additional  consideration  of $40,000  cash to
extinguish a $70,000 note receivable to the Company.

In March  2000,  the Company  was  engaged by Claria  Corporation  (CLARIA) to
provide web-based design and development services. Through September 30, 2000,
the  Company  recognized   approximately   $400,000  in  revenue  and  related
receivables  under its contract  with CLARIA.  CLARIA,  an on-line  recruiting
firm, informed the Company in September that it would be unable to continue to
make timely  payments  pursuant to the terms of contract.  Mr. Alan S. Fisher,
the vice-chairman of the Company, is the chairman of the board of directors of
CLARIA. On November 13, CLARIA executed a twenty-four month promissory note in
the  principal  amount of $  314,396,  the net sum due to the  Company.  As of
December 31, 2000,  the principal  amount was $302,465.  This note bears 9.63%
annual  interest,  is payable  in  monthly  installments  of  $14,454,  and is
personally guaranteed by Mr. Alan S. Fisher and Mr. Razi Mohiuddin, a director
of  CLARIA  and a  former  officer  of  Infodata  Systems  Inc.  Consequently,
management  believes the amounts  associated  with these  services to be fully
collectible.

                                     -24-

<PAGE>


                             INFODATA SYSTEMS INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In December  1999,  the Company was engaged by Redknife,  Inc.  (REDKNIFE)  to
develop and implement a comprehensive systems infostructure for processing and
exchanging business  transactions over the web. Through December 31, 2000, the
Company recognized approximately $1,277,000 in revenue and related receivables
under its contract with REDKNIFE. During the fourth quarter ended December 31,
2000,  a dispute  arose  between  the Company and  REDKNIFE  regarding  future
obligations,  work  completed  and the  amounts  currently  due the Company of
approximately  $413,000 and owing under both the Master  Consulting  Agreement
and the  Letter  Agreement.  Mr.  Alan S.  Fisher,  the  vice-chairman  of the
Company,  is a general  partner and founder of  Wingspring,  a shareholder  of
REDKNIFE.  On  February  8, 2001,  a  contract  modification  was  consummated
resulting in a reduction of contract value  amounting to $188,000.  The amount
then due  Infodata,  $225,000,  was paid in full by  REDKNIFE.  The  financial
statements as of December 31, 2000 have been  adjusted  through a reduction in
revenue to reflect this change in contract value.

NOTE 10. Segment Reporting

In  1998,  Infodata  adopted  SFAS  131,  "Disclosures  about  Segments  of an
Enterprise and Related Information." Under SFAS 131 the Company has determined
that it operates in three segments:  (1) Solutions,  (2) Proprietary Products,
and (3) Third Party Products.

The accounting policies of the segments are the same as those described in the
"Summary of Significant  Accounting Policies." Infodata evaluates its segments
on the basis of revenue less direct  costs.  The Company  does not  internally
report assets on a segment  basis.  For comparison  purposes,  the Company has
prepared separate  information for the years ended December 31, 2000 and 1999.
In the year 2000,  the Company  elected to evaluate all its segments  based on
revenue less direct costs.  The 1999 segment  information  has been updated to
reflect the change in methodology.

The table below presents  information  about  reported  segments for the years
ending December 31, 2000 and 1999, as well as  reconciliation to reported loss
before income taxes.

<TABLE>
<CAPTION>

                                                   2000                                                  1999
                            ----------------------------------------------------  -------------------------------------------------
                              Solutions   Third Party Proprietary     Total        Solutions  Third Party  Proprietary     Total
                                           Products     Products                                Products    Products
                            ----------------------------------------------------  -------------------------------------------------

<S>                           <C>             <C>       <C>         <C>           <C>         <C>         <C>         <C>
Revenue....................   $10,548,000     $725,000  $1,749,000  $13,022,000   $6,119,000  $1,455,000  $2,697,000  $10,271,000
Direct costs...............     5,891,000      668,000     223,000    6,782,000    3,092,000   1,394,000     192,000    4,678,000
                             ------------     --------  ----------  ------------  ----------  ----------  ----------  ------------
Segment profit.............   $4,657,000      $57,000  $1,526,000     6,240,000   $3,027,000    $ 61,000  $2,505,000    5,593,000
                              ===========     ======== ===========  -----------  ===========   ========= ===========  ------------
Research and development...                                            (379,000)                                         (684,000)
Other costs not allocated
   to segments, primarily
   selling, general and
   administrative..........                                          (8,236,000)                                       (8,007,000)
Goodwill impairment........                                                   -                                        (2,122,000)
Interest net...............                                              72,000                                           186,000
                                                                     -----------                                      ------------
Loss before income taxes...                                         $(2,303,000)                                      $(5,034,000)
                                                                    ============                                      ============
</TABLE>

NOTE 11. Business Acquisition


On March 30, 2000, the Company  acquired a business unit from Earth  Satellite
Corporation  specializing in providing  software  development  services to the
U.S. intelligence community.  The Company issued 40,000 shares of Common Stock
with a per share  fair  value of $ 3.563,  equal to the  trading  price of the
Company's  Common  Stock  on that  date.  The  acquisition  cost  approximated
$184,000,  including  $42,000 of direct cost attributed to the business unit's
sole contract.  The acquisition  value of the contract is being amortized over
its life of 18 months.

                                     -25-

<PAGE>

                             INFODATA SYSTEMS INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12. Subsequent Event

On February 9, 2001, the Company completed the sale of its entire equity stake
in Buckaroo.com,  Inc., to six private investors for a gain of $1,068,165. The
gross  proceeds  from the  sale was  $1,092,740  and the  original  cost was $
24,575.

On February 9, 2001, the Company  issued an additional  13,334 shares to Earth
Satellite  Corporation  pursuant  to a working  capital  adjustment  provision
included in the Asset Purchase Agreement.

                                     -26-